Name of the Project
Colluli sulphate of potash (SoP) project.

Location
The project is located in the Danakali Depression region of Eritrea.

Project Owner/s
The project is 100%-owned by the Colluli Mining Share Company (CMSC), a 50:50 joint venture between Danakali and the Eritrean National Mining Corporation (ENAMCO). CMSC’s aim is to become a  producer and exporter of sulphate of potash (SoP) during 2022.

Project Description
In a front-end engineering design (FEED) study completed in January 2018, the Colluli project was established as the most advanced, economically attractive and fundable SoP greenfield development project worldwide.

Colluli is also the closest known SoP deposit to a coastline anywhere in the world, only 75 km from the Red Sea.

At FEED production rates, the project has an expected mine life of 200 years. It is fully permitted, with the mining agreement and all requisite mining licences in place.

Colluli is the only known SoP resource that allows for the extraction of potassium salts in solid form that, in turn, allows for immediate processing, significantly less time between mining and revenue generation, and a reduction of the evaporation pond’s footprint, consequently contributing to a lower overall capital intensity.

A modular development approach has shown a highly scalable, long-life project. The shallow mineralisation of the project makes the resources amenable to opencut mining.

Module 1 is expected to produce 472 000 t/y of premium SoP. Module 2, starting production in Year 6 of the project, will increase total SoP production to 944 000 t/y. The massive Colluli ore reserve has significant capacity to underpin further expansions and support decades of growth beyond modules 1 and 2.

The mine will comprise an openpit, developing progressively from north-east to south-west. The pit will have a progressive working face that will provide access to each of the mineralised layers simultaneously. The orebody comprises sylvinite, carnallitite and kainitite that will be fed as ore feed into the processing plant and from which sylvite, carnallite and kainite will be extracted and mixed to produce SoP.

Mining will be conducted by mining contractors using conventional mechanised equipment, with no drill-and-blast required. Mined ore will be transported by truck to a run-of-mine pad adjacent to the processing plant.

Colluli has significant diversification potential beyond SoP, including the option to produce additional potash and salt products such as muriate of potash, SoP-magnesia, kieserite, gypsum, magnesium chloride and rock salt.

Potential Job Creation
The project is expected to create more than 500 permanent jobs for locals and Eritrean nationals in Module 1, and more than 650 (cumulative) jobs once Module 2 is online, and benefits from strong local support.

Net Present Value/Internal Rate of Return
The project has an after-tax net present value, at a 10% discount rate, of $902-million for modules 1 and 2, and an internal rate of return of 29.9%. Module 1 has a payback of 3.25 years.

Capital Expenditure
Module 1 will require an initial capital investment of $302-million. The $200 million senior debt facility offered by Africa Finance Corporation (AFC) and African Export-Import Bank (Afreximbank), as well as the equity investment from AFC, have provided the majority of the funding required for construction and project execution.

The incremental Module 2 development is expected to require an initial capital investment of $202-million.

Planned Start /End Date
Development started at the beginning of 2020, and production is expected to start in 2022, with ramp-up to full production in 12 months.

Latest Developments
Danakali is proceeding with Phase 2 of the engineering, procurement, construction and management (EPCM) at the Colluli potash project.

A water desalination plant order has also been placed, and design work has been completed, along with long-lead items having been ordered and manufacturing having started, although the latter is currently on hold, owing to the Covid-19 lockdown in South Africa.

“The evolving environment is likely to cause some project development delays,” Danakali CEO Niels Wage has said, lamenting the difficulty of providing an exact assessment with regard to a revised project delivery timeline.

Turning towards the company’s financial position, outgoings for the quarter, ended March 31, include A$8.3-million of nonrecurring expenditure associated with lender and advisers’ fees that are associated with the successful debt financing activities in December 2019.

An in-depth review of activities has been undertaken to reprioritise activities that are now considered nonessential amid Covid-19 restrictions.

Key activities planned for the remainder of the year will include the continuous monitoring of developments in financial markets to revise Danakali’s financing plans in response to Covid-19 while continuing with the completion of conditions necessary to allow for the senior debt drawdown for CMSC.

The company will continue to execute its equity strategy for the remaining project financing and capital requirements, though this is subject to the recovery of the global market.

In response to the Covid-19 pandemic, Danakali has temporarily suspended on-site work activities until restrictions are lifted. The desk-based nature of the majority of the work that was already under way has enabled the company to focus all available remote-working resources on the EPCM workstreams and investigate optimisation opportunities.

Geotechnical investigation works have also been temporarily deferred pending the lifting of travel restrictions. 

Key Contracts and Suppliers
The company and project have a strong network of partnerships, including EuroChem (ten-year binding offtake agreement with Danakali for up to 100% of Module I production), Africa Finance Corporation and Afreximbank (provision of $200-million in senior debt finance to CMSC, with the AFC having also agreed to a $50-million strategic equity investment in Danakali); DRA Global (EPCM contractor), Inglett & Stubbs (preferred power contractor); EMW (preferred mining contractor); and Turner & Townsend (contract development).

Contact Details for Project Information
Danakali CEO Niels Wage, tel +61 8 6189 8635 or email info@danakali.com.